Cisco Loses Over $10M in Two Fraud Cases

Two different individuals in the Northeast were arrested in the past week for allegedly defrauding Cisco Systems out of millions of dollars worth of replacement parts.

On March 6, Michael Daly, a 53-year-old businessman from Danvers, Mass., was arrested for wire fraud. On March 2, Michael Kyereme, an independent contractor working for the city of Newark, N.J. was arrested and charged with defrauding Cisco of over $10 million worth of replacement parts.

Both men allegedly exploited Cisco's SMARTnet warranty program to fraudulently obtain valuable Cisco replacement parts, which they sold to computer resellers or Cisco discount equipment dealers.

In both cases, the men made service requests of Cisco under SMARTnet contracts for replacement parts, claiming that the parts were inoperable. Although the SMARTnet program requires them to return the defective parts, the two men either failed to return any parts at all, or they returned other parts with little or no value.

A Cisco spokesman John Noh characterized the timing of the arrests as "coincidental." In a recent internal audit, Cisco Systems found that it received an average of 3,300 service requests per day between August 2006 and February of this year. "In that context these are very random cases," Noh said.

Kyereme, a 40-year-old Piscataway, N.J. IT support contractor, ordered some 280 parts from the Cisco SMARTnet program between August of 2002 and early 2007 on behalf of the City of Newark. In a search of his home on March 2, the FBI recovered $3 million worth of Cisco replacement parts.